If you want pure exposure to the container ship chartering space there are few direct ways to get this. Today, since I've finished analyzing Danaos (NYSE:DAC), I'm ready with a comparative analysis of the five companies I follow in this space.
As I have previously written, the companies have very stable cash flow as they enter into long term agreements 8 - 15 years, hedge their interest exposure and have few operational costs. I therefore think a discounted cash flow model/maximum dividend model is the most appropriate. For more details on how I have valued each company see here.
Fair price: 26, upside from yesterday's close: 57%
Average ship age when fleet is fully built: 2.5 years
Average outstanding charter agreements: 10 years
Average ship size when fleet is fully built: 6159
Seaspan is my top pick. It has a very strong management and has recently entered into an exiting partnership that will help it acquire ships at favourable rates. It currently stands to acquire up to 20 additional 10.000 TEU ships. It can do this because its cash flow and financial position is so strong that its net debt to ship value is rapidly falling. It is the one that varies the least in value when varying the discount and TC rates. It is finally increasing its dividend rapidly.
Fair price: 18-20, upside from yesterday's close: 8-20%
Average ship age when fleet is fully built: 9.75 years
Average outstanding charter agreements: 6.3 years
Average ship size when fleet is fully built: 5400
Of the companies listed in the U.S., Costamare has the highest dividend yield. Costamare has the least leverage of the group and the dividend is very safe. It has the oldest ships, meaning it is the one that varies the most with how prices develop for older second hand tonnage. I must admit I properly overstated the second hand value of CMRE large ships in my prior article. These are hard to price as most transactions take place in small ships and new buildings. On the other hand I think second hand values are set to rise as they seem too low relative to the current TC rates.
Global Ship Lease (NYSE:GSL)
Fair price: 7.35, upside from yesterday's close: 10%
Average ship age when fleet is fully built: 5.2 years
Average outstanding charter agreements: 8.9 years
Average ship size when fleet is fully built: 3937
GSL has been the top performer off its lows. It is about to issue either shares and/or preferred perpetuals/similar and then reinstate the dividend. I really don't know how this transaction is going to pan out so I will stay away from GSL for now. GSL has a very active and good message board on yahoo so I encourage readers to have a look at that. GSL currently has its entire fleet chartered to CMA CGM but I expect it will bring in ZIM for two vessels in December.
Rickmers Maritime, Listed in Singapore
Fair price: 0.65 USD, upside from yesterday's close: 111%
Average ship age when fleet is fully built: 3.5 years
Average outstanding charter agreements: 5.1 years
Average ship size when fleet is fully built: 4151
RM is my top pick on a valuation basis. It pays a very high dividend of 8% and is set to raise this once it feels confident it no longer needs its covenant waivers. The share is not too liquid and has very little volatility. It doesn't move with a high correlation with the rest of the space. I can't really explain this. Some think the under valuation is because of its low market cap. For the patient investor/retirement account I think it is a must. All ships are of the same size. It has a rather short duration on its outstanding charters.
Fair price: 6.85 USD, upside from yesterday's close: 38%
Average ship age when fleet is fully built: 5.1 years
Average outstanding charter agreements: 9.0 years
Average ship size when fleet is fully built: 5580
Danaos is the most leveraged of the five companies and therefore varies the most with changes to the discount rate and changes in the TC rates. Also it is not particularly liquid. It has quite long average charter agreements but also 11 ships that come up for renewal in 2011. This will be very interesting to follow. If you are uncomfortable with the CEO of DRYS then you should stay away from DAC as he owns 10 % of the company.
Each of the 5 companies above offer some upside (moderate to high) to their current price. I hope I have given you an idea how to pick among them depending on what you are looking for. Most of the financial stress is gone in the sector and TC rates are steadily rising. The order book relative to the fleet has been reduced significantly and owners are now so optimistic that they are ordering new ships again - the risk is that it will be too many.
Disclosure: I am long DAC, CMRE, SSW.
Additional disclosure: and long Rickmers